CENTRAL BANK OF THE PHILIPPINES, PETITIONER, VS. THE TAYUG RURAL BANK, INC., JUAN A. DE VERA, REMEDIOS M. ALLAS, JESUS S. MAXION, TEOFILO Z. ALMONDOVAR, FELOGENIA ALMONDOVAR, WI…

This is an original petition for mandamus and preliminary
mandatory injunction.

During the period from May 19 to August 8, 1964, a general examination of the books and
records of the respondent Tayug Rural Bank was
conducted by a team of examiners of the petitioner Central Bank of the Philippines.  This examination, the Central Bank asserts,
is conducted on all rural banks, pursuant to the authority of section 10 of
Republic Act 720, as amended, which states:

“The director and examiners of the Department of the Central
Bank charged with the supervision of Rural Banks are hereby authorized to …
compel the presentation of all books, documents, papers or records necessary in
his or their judgment to ascertain the facts relative to the true condition of
any Rural Bank or to any loan.”

The examination of the corporate books of the respondent bank
disclosed, according to the petitioner, the commission of “serious
irregularities, anomalies and violations,” namely, (1) the grant of
irregular loans, viz, loans which, according to the sworn statements of
“borrowers,” were not received by them, loans against non-existing
collaterals or projects, padded loans, and loans made through commission
agents; (2) high percentage (45% of total outstanding loans) of past due items;
(3) delinquency in the payment of the rural bank’s rediscounted notes to the
Central Bank totalling 585,429; (4) re-lending collections from its rediscounted promissory
notes totalling 410,009 as of May 18, 1964; (5) excessive or unnecessary expenditures; and (6)
accumulation of unliquidated advances made to the
rural bank’s officials and employees.

As a result of this study of the respondent bank’s books and the
consequent recommendation of the Director of the petitioner’s Department of
Rural Banks, the Central Bank Governor wrote a letter dated October 27, 1964,
to the board of directors of the rural bank, directing it (1) to suspend immediately
the rural bank’s lending operations and direct all efforts toward the
collection of past-due and maturing loans; (2) to keep intact all collections, use them for normal operating expenses
only, and remit any balance in such collections to the Central Bank as par­tial
payment of the rural bank’s rediscounted notes; and (3) to make regular weekly
remittances to the Central Bank.  The CB
Governor also informed the rural bank that the CB Monetary Board had decided to
assign immediately a team of examiners to supervise the rural bank’s operations
and enforce the suspension of its lending activities.

Consequently, on November
24, 1964, a team of CB exam­iners went to the respondent bank and asked to be allowed to conduct a
special examination of its books and records as directed by the CB Monetary Board.  The team also brought with them a letter of the Director of Rural Banks
of the Central Bank informing the respondent bank that the request of its
counsel for a deferment of the said special examination had been denied.  Apparently, the request of the investigating team was not granted, because on December 24, 1964 the petitioner
Central Bank came to this Court and filed the instant petition for mandamus to compel the respondent
bank to open its books for examination by the petitioner’s officials.

On December 24, 1964, by virtue of a cash bond
in the amount of 1,000 posted by the petitioner, we granted and issued the writ
of preliminary mandatory injunction prayed for.

On February 2, 1965,
all the respondents submitted to this Court their consolidated answer,
admitting some of the allegations of the petition and disputing certain
averments of fact contained therein, particularly those making reference to the
commission of “serious
irregularities, anomalies and violations.” The respondents also presented
two affirmative defenses, the first of which is that this Court should remand
this case to the proper court of first instance for reception of evidence on
the disputed averments of fact.

There is probably some merit to this first affirmative defense of
the respondents.  However, they also raised the defense that this case has
already been rendered moot and academic by
the subsequent turn of events,
and were we wont to disagree with this contention, we would indeed resolve their first defense with
the thoughtfulness it deserves.  This
notwithstanding, it must be
stated that according to the petitioner, it “has chosen to file the
instant action with this Honorable Court in view of very extreme urgency and considering
that at present the Court of
First Instance Branch at Tayug, Pangasinan
is vacant; that only a question of law is
herein involved, consisting of compelling respondents to allow petitioner to
exercise its right to examine and supervise rural banks under Sec. 10 of R.A. 720, as amended, and R.A.
265.”

We now turn to the threshold question posed by the respondents.  In their
answer, the respondents state —

“. . . that on or about December 28, 1964, the respondent Tayug Rural Bank, even without having been served
officially with the writ of preliminary mandatory injunction, issued by the
Honorable Court, permitted and allowed another team of the petitioner Central
Bank headed by a certain Mr. Damo, and said team of examiners and investigators,
up to this date [February 1, 1965], are still at the Tayug
Rural Bank examining and investigating the affairs of the respondent, Tayug Rural Bank, hence the respondents herein respectfully
submit that the question being raised by
the petitioner herein before this Honorable Supreme Court, in the above
entitled case, has already become academic and a moot
question.”

The petitioner Central Bank has not, in any manner, or at any
time until the present, controverted this crucial
claim of the respondents.  The respondents,
on the other hand, recognize the right of the Central Bank to conduct
examinations of the respondent bank’s books and affairs pursuant to R.A. 720,
as amended, and have not, since February 1, 1965 up to the present, in any way
impeded the exercise by the Central Bank of the said right.  Additionally,
the Central Bank, since 1965 up to the present, has uninterruptedly been
allowed to supervise and examine the operations and corporate records of the
respondent bank, and the latter’s financial affairs have been and still are in
the process of being adjusted on to a firm
footing under the aegis of the Central Bank. 
Consequently, we are of the view, and we so hold, that this case is now
moot and academic.

ACCORDINGLY, this case is dismissed; the cash bond filed
by the petitioner Central Bank is ordered returned.  No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.